Daily FX Update, 15 March 2016

OVERNIGHT MARKET UPDATE:

·         Euro area – The better-than-expected euro area industrial production data at 2.1% m/m elicited little response from markets given the lead from last week’s stronger German and French IP reports. Energy and non-durable consumer goods production both increased by 2.4%, durable consumer goods production increased by 1.3%, while intermediate goods production increased by 0.9%.

·         Currencies – The USD broadly firmed overnight as markets looked forward to the FOMC. The EUR/USD eased with markets taking a more favourable view of ECB action. Both AUD and NZD eased back from Friday’s strength.

·         Equities – European equity markets were generally modestly stronger, with the UK FTSE 100 and Euro Stoxx 50 both closing up 0.6%, the German DAX finishing 1.6% higher, and the French CAC 40 up 0.3%. US stocks fluctuated as gains in consumer stocks offset falls for financial and energy stocks, but closed up marginally.

·         Rates – Moves in European sovereign bond markets were mixed. UK, Italian, and Spanish yields were all down 2 bps, while German yields rose 1 bp. US 10 year Treasury yields were also down just 1 bp.

·         Energy – Crude oil prices were weaker. Iran’s build-up of production and exports remains a drag on prices. Oil minister Bijan Namdar Zanganeh said the country plans to raise output by about a 3-4Mb/d before it will consider joining any move to rebalance the market. Despite this, OPEC continues to search for an agreement, with delegates expected to meet in April.

Precious Metals – Gold physical demand from India remains weak amid a jewellers' strike over excise duty. Up until now, strong ETF demand has supported gold prices in the absence of physical demand. ETF gold holdings at an 18 month high suggest Monday’s decline could be due to ETF outflows amid a stronger dollar and improving US outlook.